Experts Urge Shippers to Secure Trucking Rates Now Before Market Tightens

Shippers aiming for the most favorable trucking rates should act promptly to secure them, according to industry experts. Carriers are beginning to signal improving market conditions, which could translate into higher transportation costs for supply chain managers in the near future.

Already, inventory levels are showing signs of normalizing, and executives at several major trucking firms have indicated that a return to normalcy could be imminent.

“While customers still find themselves in a heightened state of uncertainty heading into 2024, virtually no one believes the current demand and capacity cycle is a new normal, or even that it's durable,” said Mark Rourke, president and CEO at Schneider National, during the company’s Q4 earnings call. “The consistent question is, when does it change?”

Brokerages See Persistent Trucking Oversupply

Freight brokers concur that the trucking sector remains oversaturated, and more carriers must exit the market to restore balance.

Trends indicate that more trucking companies are leaving the market while fewer are entering, said Jason Mansur, vice president of Enterprise Partnerships at Valley Companies, a Hudson, Wisconsin-based broker. However, a stabilizing freight market may slow capacity exits, potentially leading to minimal or no change in freight rates.

“Our take is that rates hit the bottom this past fall,” Mansur said. “We have seen some markets begin to increase, but rates are still near the bottom. We don’t anticipate any further downward direction going forward.”

The prospect of rate stability, along with profits accumulated during the pandemic, may allow some carriers to endure the downturn, noted Ronnie Davis, vice president of North American Surface Transportation at C.H. Robinson.

“In a typical market cycle, 10-15% more capacity is added in the upcycle and a proportional amount leaves in the down cycle; this just hasn’t happened this time around,” Davis said.

Nevertheless, Ken Adamo, chief of analytics at DAT Freight & Analytics, said trends suggest the freight market is poised for recovery and has already passed the cycle’s bottom. His analysis shows that operating costs for smaller carriers are running at a breakeven point. Additionally, e-commerce and brick-and-mortar sales exceeded expectations in Q4, prompting retailers to clear inventory.

“Inventory should be fairly depleted by this point,” Adamo said.

Rate Recovery Expected to Be Gradual

Even if the market has bottomed, neither shippers nor carriers should anticipate a dramatic rate spike. A significant shock—such as another pandemic or an ELD mandate—would be required to disrupt the market, Adamo explained.

“There’s a lot of, I’ll say, tail breezes out there,” he said, adding that trends suggest “it will be a more tepid recovery.”

Rates Won’t Stay This Low Forever

DAT data shows spot rates at the end of 2023 were down 10-12% year-over-year, while contract rates fell between 12-14% year-over-year, according to Adamo. Consequently, shippers are striving to lock in the lowest prices now in anticipation of Q3 and Q4 needs.

Improving spot rates could become problematic for shippers, even those with signed contracts. During the pandemic and into 2022, spot rate spikes led carriers to abandon contracts in pursuit of higher returns, said Jonathan Phares, assistant professor in the department of supply chain management at Iowa State University.

While few experts predict a rate surge, several advise shippers to reconsider their logistics strategies as the market shifts toward a more carrier-friendly environment.

Davis recommends that shippers segment their freight, as not all lanes are equal. A strategic approach involves data-driven decisions on which lanes to put out for bid, determining where it’s beneficial to award freight directly versus using the spot market.

“We always advise keeping a carrier scorecard and regularly evaluating service,” Davis added.

Mansur of Valley Companies suggests shippers should plan now for the market turnaround. This may include budgeting appropriately or negotiating with carriers to strengthen relationships and ensure capacity needs are met.

Additionally, Mansur advises shippers to offer carriers more dedicated volume and add flexibility to loading or unloading practices.

“There are many methods to still help carriers so that when things turn, they remember the partnership you’ve created versus simply being just a rate shop,” he said.